Arbitration Process Issues

THE FAA’S PRESUMPTION IN FAVOR OF ARBITRATION DOES NOT REQUIRE ARGUABLE AMBIGUITIES IN ARBITRATION AGREEMENTS TO BE INTERPRETED AS “BROADLY AS POSSIBLE”

March 27, 2018 by Michael Wolgin

In a dispute over the scope of a mandatory arbitration provision, the Sixth Circuit rejected the argument that it is required by the Federal Arbitration Act’s presumption in favor of arbitration to interpret an arbitration agreement “as broadly as possible” to compel arbitration. Rather, the FAA requires a court to interpret ambiguous provisions “only as broadly as [] remains consistent with the terms of the contract and the intention of the parties.”

The court found that the plain language of the provision required the parties to submit to arbitration only any disagreements that were included in a “Notice of Disagreement.” The district court interpreted (and the parties agreed) that this language only reached any disagreements that were “properly” included in the notice, although the word “properly” did not appear in the agreement. The defendant, however, sought to argue that the arbitration provision still applied to issues that arguably affected the proper subject matter of the notice, even though those issues themselves would not have been properly included in the notice. The court disagreed, distinguishing cases involving broadly written arbitration provisions from the relatively circumscribed provision involved here, noting that the FAA’s presumption “applies only where the arbitration provision could ‘fairly be read to cover’ the particular dispute.” Smith v. Altisource Solutions, Case No. 17-501 (6th Cir. Mar. 2, 2018).

This post written by Benjamin E. Stearns.

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D.C. CIRCUIT COURT RULES ON CURRENCY CONVERSION ISSUE IN ARBITRAL AWARD

March 22, 2018 by John Pitblado

Following a Greek arbitration, Petitioner sought to confirm an arbitration award and enter judgment in the U.S. District Court for the District of Columbia. The arbitral award was issued on July 2, 2013 for €39,818,298 in damages and $162,500 in costs. Apply Rule 59(e), the District Court converted the entire award (plus interest) into U.S. dollars using the exchange rate in effect on July 2, 2013 – the date of the arbitral award – making the total judgment $62,731,104.80. Since the euro had declined over the course of the litigation, the judgment increased its value by approximately $11.9 million.

On Appeal, the D.C. Circuit Court found the District Court had erred in two ways: (1) it incorrectly concluded that Rule 59(e) precedent did not apply to Petitioner because it was not a “losing party;” and (2) it incorrectly concluded that it was “manifestly unjust to award [Petitioner] judgment in euros even though [Petitioner] had expressly sought relief in euros at least three times and had not asked for dollars until its post-judgment motion.”

The Circuit Court held that “under Rule 59(e), a district court may not convert a judgment to dollars if the movant contracted in euros, received its arbitral award in euros, requested euros in its complaint and filed three proposed order seeking euros, before reversing course post-judgment.” The matter was remanded with instructions to reenter judgment in accordance with the arbitral award.

Leidos, Inc. v. Hellenic Republic, No. 17-7082 (D.C. Cir. Feb. 2, 2018)

This post written by Nora A. Valenza-Frost.

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SEVENTH CIRCUIT REVERSES ORDER COMPELLING ARBITRATION OF DISPUTE BETWEEN TWO NON-SIGNATORIES TO ARBITRATION AGREEMENT

March 21, 2018 by John Pitblado

The U.S. Court of Appeals for the Seventh Circuit recently held that state law governs whether a contract’s arbitration clause is binding on non-signatories. The dispute arises from a consumer protection action filed by the plaintiff in response to a spam text message he received promoting a Subway sandwich. Subway sought to compel arbitration of the action based on the arbitration clause in two cellphone contracts between T-Mobile and plaintiff’s mother. Although plaintiff was an authorized user under his mother’s account, plaintiff never signed and was not otherwise a party to the T-Mobile agreements. Applying federal law, the district court dismissed plaintiff’s action and compelled arbitration based on principles of equitable estoppel. The Seventh Circuit reversed, however, finding that state law estoppel applied and that Subway could not prove that it detrimentally relied on plaintiff’s statements or conduct as it relates to the T-Mobile arbitration clauses.

Warciak v. Subway Restaurants, Inc., No. 17-CV-01956 (7th Cir. Jan. 25, 2018)

This post written by Alex Silverman.

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FIFTH CIRCUIT AFFIRMS WAIVER OF ARBITRATION WHERE PLAINTIFF FIRST SOUGHT TO COMPEL ARBITRATION AFTER REMOVAL TO FEDERAL COURT

March 8, 2018 by Carlton Fields

This case concerned a business dispute between two physicians. Despite the arbitration clause contained in their agreement, Dr. Raju sued Dr. Murphy in state court. However, after Dr. Murphy removed the case to the District Court for the Southern District of Mississippi and counterclaimed, Dr. Raju invoked the arbitration clause and moved to stay the court proceedings. The district court denied Dr. Raju’s motion to compel arbitration, which prompted this interlocutory appeal.

The Fifth Circuit affirmed the district court’s decision, reasoning that the right to arbitrate is subject to waiver when, as here, “the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party.” As the court determined, “Dr. Raju clearly prefer[red] litigation over arbitration, apparently just not in this Court.” The court went on to find that Dr. Murphy had been prejudiced by “being required to answer the complaint, to file a counterclaim, to consult with two law firms, and to gear her legal strategy to court proceedings instead of arbitration” as well as by “the public nature of the lawsuit” as compared to the “private and confidential” nature of arbitration. Raju v. Murphy, No. 17-60550 (5th Cir. Jan. 26, 2018).

This post written by Gail Jankowski.
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ARBITRATION AGREEMENT SELECTING MARYLAND LAW HELD UNENFORCEABLE AS TO PRIVATE ATTORNEY GENERAL CLAIMS BROUGHT UNDER CALIFORNIA LAW

March 7, 2018 by Carlton Fields

A choice of law provision within an arbitration agreement selecting Maryland law was held unenforceable in so far as it would result in waiver of claims under the California Private Attorneys General Act (PAGA), contrary to California’s “fundamental policy.”

Because the diversity action was brought in federal court in California, the court was required to follow California’s choice-of-law rules. California law provides that application of choice of law provisions that would yield results conflicting with California’s fundamental policy is error. The Ninth Circuit stated that PAGA represents a “fundamental California policy.” Therefore, the arbitration agreement’s choice of law rules selecting Maryland law could not be enforced, because they would waive the plaintiff’s PAGA claims.

However, the plaintiff’s claims for unpaid wages under California law were distinguishable from her PAGA claims. Arbitration of the unpaid wages claims was not contrary to any fundamental policy. As a result, the court ordered arbitration of the plaintiff’s personal unpaid wages claims, while prohibiting arbitration of her PAGA claims. Mandviwala v. Five Star Quality Care, Inc., No. 16-55084 (9th Cir. Feb. 2, 2018).

This post written by Benjamin E. Stearns.
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